Powered by a growing enterprise business, Monday.com (MNDY), a provider of a work management software platform, in August delivered strong Q2 results. The company is likely to demonstrate continued momentum across the enterprise segment in its upcoming Q3 report.
In Q2, Monday’s total revenue gained 42% to $175.7 million, topping the consensus estimate by 3.8%. Per-share earnings of 41 cents beat the consensus by 24 cents. Operating margin of 9% came in well above the guide of 1% to 2%. Adjusted free cash flow totaled $46 million (26% margin). The net retention rate for customers with over 10 users was above 120%, better than the guide of 115% to 120%.
For the second quarter in a row, Monday added more than 200 paid enterprise customers with total annual recurring revenue (ARR) over $50,000. Monday is steadily delivering key updates that are tailored to the requirements of larger accounts. As of Q2, the total enterprise customer base stood at 1,892, up an impressive 63% from the year-ago level. Enterprise customers now represent 29% of total revenue versus 24% a year ago.
For Q3, Monday forecasted total revenue of $181 million to $183 million (representing growth of 32% to 34%), above the consensus at the time of $179.3 million. The company’s revised 2023 total revenue outlook of $713 million to $717 million (growth of 37% to 38%) was nicely above the previous guide of $702 million to $706 million. Monday lifted its 2023 operating income guide to $26 million at the midpoint from $10 million previously.
Monday’s platform provides customizable, no-code/low-code building blocks that give users the ability to easily create tools and processes that are needed to manage various aspects of work. Organizations have deployed Monday across a number of use cases—including customer relationship management (CRM), project management and marketing campaign management.
Monday’s newer Work OS product suite—made up of the Sales CRM, Marketer, Dev and Projects offerings—helps the company score wins in competitive situations because it offers users a complete platform. With Work OS, prepackaged solutions tailored by vertical make it easy for companies to get started with Monday. For larger customers, Work OS enables them to roll out Monday solutions companywide, adding new departments and deepening usage in existing departments.
Sales CRM has become the most popular component of Work OS. It’s more customizable and easier to use than traditional CRM tools (including those from Salesforce). Users like that they can get a stage-by-stage view of the entire conversion funnel for all deals.
While Monday is seeing healthy demand across its entire product portfolio, Sales CRM has been a standout. As of Q2, the product was available to half of all accounts. The total number of Sales CRM customers jumped 53% sequentially to 8,323.
The new Monday Dev product helps users manage the software development process. In Q2, the total number of Dev customers advanced 52% sequentially to 781. Monday’s DB 1.0 database, now open to all customers, represents new infrastructure capabilities that enable bigger workflows and better performance (complex boards now load five times faster), appealing to larger customers.
Monday Workflows, a new add-on, was open to about 20% of all customers in the latest quarter. The offering optimizes automation and allows users to manage more complex workflows. It utilizes drag-and-drop blocks, giving users the ability to easily build new workflows. The Workflows add-on was expected to be open to all customers by the end of Q3.
Since the Q2 report in the middle of August, Monday shares have fallen 10%. Recently trading around $140, the stock has rebounded from its October low of $122.13.
On Wall Street, most bullish Monday price targets are at or above the $180 level. Canaccord raised its target to $195 from $175 following the Q2 report because it liked the combination of healthy revenue growth and robust free cash flow. Citi expects a strong Q3 report, with its latest checks suggesting upside potential on both the top and bottom lines. Citi has a price target of $189. DA Davidson recently upgraded Monday to ‘Buy’ with a target of $170, saying the company can outperform Q3 guidance by a healthy margin based on its checks, including analysis of third-party data and management discussions.
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